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  U.S. Probing Whether Microsoft Illegally Pressured Intel

By Rajiv Chandrasekaran
Washington Post Staff Writer
Wednesday, August 26, 1998; Page C11

The Justice Department and 20 state attorneys general are investigating whether Microsoft Corp. used its market clout to pressure one of its closest corporate allies, microchip giant Intel Corp., to abandon technology initiatives Microsoft opposed, sources close to the matter said yesterday.

Any such Microsoft effort could be cited as supporting evidence in the government's antitrust case against the software company, which is scheduled to go to trial on Sept. 23, the sources said.

Government investigators are focusing on an August 1995 meeting between Intel and Microsoft executives that included Intel Chairman Andrew S. Grove and Microsoft Chairman Bill Gates. At the meeting, the sources said, Gates made "vague threats" to work more closely with Intel's competitors if Intel continued to invest in Internet-related technologies and businesses, which Microsoft felt would create a layer of competition between them. An account of the meeting was included in internal Intel documents subpoenaed by government lawyers preparing their antitrust case.

Government lawyers also have taken depositions from several Intel executives in the past several weeks, one source familiar with the case said.

An allegation that Microsoft has used anti-competitive business tactics with one of its closest partners – the alliance of Intel's chips and Microsoft's Windows operating system software often is referred to as "Wintel" – would add a significant new twist to the government's antitrust case.

The Justice Department and the states contend that Microsoft has engaged in a pattern of illegal business practices by using its monopoly with Windows to squelch competition for Internet "browsing" software. Government lawyers are asking a federal judge to force Microsoft to either strip its Internet Explorer browser from Windows 98 or include a browser made by rival Netscape Communications Corp. alongside Explorer.

The allegations related to Intel could help bolster the government's description of Microsoft's meetings with other firms, particularly Netscape, suggesting a pattern of anti-competitive behavior. The Justice Department, in its antitrust lawsuit, contends that during two meetings between Microsoft and Netscape executives in June 1995, Microsoft tried to persuade Netscape to divide the browser market instead of competing. Microsoft denies the allegation.

A Microsoft spokesman refused yesterday to "speculate on what new theories the government may be trying to create in the weeks before this case goes to trial."

"We have a very strong and close working relationship with Intel and we meet regularly to ensure that our technologies are compatible," spokesman Mark Murray said. "Frankly, that's good for the future development of the high-tech industry and that's good for consumers."

A Justice Department spokesman would not comment on the matter last night. An Intel spokesman also would not comment.

Other than complying with subpoenas and requests for depositions, it is unclear how closely Intel is working with the Justice Department and the state attorneys general. A high level of cooperation could be a boon for government lawyers, but it also could lead to new strains in the relationship between Intel and Microsoft.

Intel itself is the subject of an antitrust lawsuit brought this summer by the Federal Trade Commission. The suit alleges that Intel retaliated against three companies by withholding key technical information about upcoming chips – data the companies have said they need to design products around Intel's market-dominating Pentium processors.

The three-hour meeting between Grove and Gates took place on Aug. 2, 1995, just weeks before Microsoft released its Windows 95 software, the sources said. An account of the meeting is reported in today's editions of the New York Times.

The companies, which have a long tradition of working together, talked extensively about their technical strategies and upcoming products. But when the conversation turned to the Internet and multimedia software, the disagreements became obvious and the discussion grew heated, according to the sources familiar with the Intel documents that describe the meeting.

One of the conflicts involved Intel's development of native signal processing software for multimedia applications, a dispute that was reported soon thereafter in trade publications. The sources said that Microsoft executives were upset with Intel's interest in including Internet features, particularly support for the Java programming language, in its microprocessors. Java, developed by Microsoft rival Sun Microsystems Inc., is seen as a threat to Windows because programs written in the language can run on any operating system.

"Gates didn't want [Intel] engineers interfering with his plans for domination of the PC industry," the Times quoted an Intel memo as stating. "Gates made vague threats about support for other platforms, and on the same day he announced a major program to support the Alpha microprocessor made by Digital Equipment Corp., an Intel competitor. Gates was livid about [Intel's] investments in the Internet, and he wanted them stopped."

Around the same time, Gates announced that Microsoft would spend up to $100 million to develop products for a version of Windows that would work on microprocessors made by an Intel competitor.

The Intel incident "is very helpful evidence," said one lawyer familiar with the case. "It demonstrates a pattern of anti-competitive conduct."

© Copyright 1998 The Washington Post Company

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